Michael I. Leavitt, Successor Testementary Trustee of the Bert Earl Gassaway Testamentary Trust and Successor Independent Administrator With Will Annexed of the Estate of Marie Anderson Gassaway v. Ballard Exploration Company, Inc.
540 S.W.3d 164
| Tex. App. | 2017Background
- Trust (successor trustee Leavitt) claimed a one‑sixteenth nonparticipating royalty interest (NPRI) reserved by a 1966 deed; Holbrooks were executive owners who leased and pooled acreage into the Holbrook No. 1 Unit.
- Ballard operated the Unit and began production in Dec. 1999; Ballard paid royalties to the Holbrooks and did not know of the Trust’s NPRI until Boatner (successor beneficiary) claimed it in 2003.
- Upon receiving the claim, Ballard suspended the disputed royalty amounts and reexamined title; Holbrooks sued in Liberty County to quiet title and remove the cloud; Ballard was not a party to that suit.
- Litigation proceeded: the Liberty County court ruled for the Holbrooks; the Beaumont Court of Appeals later vacated that judgment as to the Trust for lack of subject‑matter jurisdiction; the Trust and Holbrooks later settled and Ballard paid the suspended funds to the Trust in Dec. 2014.
- The Trust sued Ballard seeking prejudgment interest and attorney’s fees under Natural Resources Code §§ 91.402–.406 and common‑law claims (conversion, unjust enrichment, equitable subrogation). The trial court granted Ballard summary judgment; the court of appeals affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Trust is entitled to statutory prejudgment interest under Tex. Nat. Res. Code § 91.403 | Trust: Ballard failed to timely pay royalties and therefore owes prejudgment interest. | Ballard: § 91.402(b)(1) permits withholding without interest when a title dispute affecting distribution exists; a dispute existed. | Held: No interest—a legitimate title dispute existed, so Ballard could suspend payments under § 91.402(b)(1). |
| Whether Ballard had to give notice under § 91.404 before withholding payments | Trust: Ballard’s failure to comply with § 91.404 prevents relying on § 91.402(b) safe harbor. | Ballard: § 91.404 is a prerequisite to suit by a payee, not a condition precedent to withholding under § 91.402(b). | Held: § 91.404 does not bar Ballard from withholding payments; it governs prerequisites to the payee’s suit. |
| Whether Trust is entitled to attorney’s fees under § 91.406 if prejudgment interest were awarded | Trust: Fees and costs follow prejudgment interest under § 91.406. | Ballard: If no prejudgment interest is owed, § 91.406 grounds for fees fail. | Held: No prejudgment interest, so no entitlement to fees under § 91.406. |
| Whether Trust may recover attorney’s fees incurred in third‑party litigation (conversion, unjust enrichment, equitable subrogation) | Trust: Ballard’s withholding forced Trust into Liberty County litigation; Ballard should reimburse fees under common‑law theories. | Ballard: Withholding was authorized by statute; it retained no benefit and was not unjustly enriched nor subrogated. | Held: Summary judgment for Ballard—no evidence Ballard was enriched or unlawfully retained funds; common‑law claims fail. |
Key Cases Cited
- KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70 (Tex. 2015) (definition and nature of nonparticipating royalty interests)
- Concord Oil Co. v. Pennzoil Expl. & Prod. Co., 966 S.W.2d 451 (Tex. 1998) (title disputes may justify withholding payments under Chapter 91)
- Montgomery v. Rittersbacher, 424 S.W.2d 210 (Tex. 1968) (NPRI owner’s ratification and share of royalties; pooling cannot bind NPRI without consent)
- Headington Oil Co. v. White, 287 S.W.3d 204 (Tex. App.—Houston [14th Dist.] 2009) (disagreement over fractional royalty interests constituted a title dispute excusing prejudgment interest)
- Prize Energy Res., L.P. v. Cliff Hoskins, Inc., 345 S.W.3d 537 (Tex. App.—San Antonio 2011) (operator’s duty to pay royalties and Chapter 91 prompt‑payment rules)